•Contracting capacity – in the context of the JOA, the operator typically enters into any contracts with third parties which may be necessary for the performance of the joint operations as the disclosed agent of the parties (see 7.4), such that the parties will be contractually liable as disclosed principals. In the incorporated joint venture, however, the JVC will be the contracting entity and the shareholders will not ordinarily have any direct contractual liability to any person which the JVC contracts with.
•Termination events – the JOA can be terminated by agreement between the parties if they so resolve, and will (eventually – see 5.4) cease to apply if the concession comes to an end. Similar principles could apply in the context of the JVC. The insolvency of a shareholder or the unremedied default of a shareholder as a termination event will typically be an event of default in respect of the context of the JVC, and will be of equal application to each of the shareholders. However, the insolvency of a party or the unremedied default of a party as a termination event will typically apply only in respect of the party which is the operator under the JOA, and not in respect of any non-operating party (see 7.5).
(b)Combined incorporated and unincorporated structures
There are certain circumstances in which an incorporated joint venture and an unincorporated joint venture structure could be used together.
Where the parties to the JOA wish to contract for an activity which would fall within the definition of excluded activities (see 6.2), such as the provision of transportation for their respective petroleum entitlements beyond the delivery point, then the starting assumption is that the parties will each contract on a several basis for the performance of that activity. Thus, taking the transportation issue to illustrate the point, each party might enter into a separate transportation agreement with the owner of an adjacent pipeline for the transportation of that party’s petroleum entitlements from the delivery point to where the petroleum is required.
Structuring the transportation function in this manner could expose the parties to fragmentation of the bargaining power which they might otherwise enjoy if they were able to engage en bloc in the negotiation of a single transportation agreement with the pipeline owner. To overcome this, it might be possible (subject to compliance with any prevailing competition law issues) for the parties to contract jointly with the pipeline owner and so allow the parties to aggregate their requirements in a single transportation agreement which hopefully presents a more attractive commercial position than would be achieved through several separate transportation agreements.
Taking this form of collaborative model one step further, the parties might choose to incorporate a JVC to effect the transportation function. Each party would transfer its petroleum entitlements to the JVC at the delivery point and the JVC, which would contract with the pipeline owner for the transportation of the parties’ combined petroleum entitlements through the transportation agreement, would deliver a single, common stream of petroleum into the pipeline at the appropriate entry point.
The parties might structure the equity participation in the JVC which is incorporated for these purposes such that the equity held by a party is in the same proportion as that party’s share of the aggregate quantity of petroleum for which the JVC books pipeline capacity.
Using the JVC as the vehicle for booking transportation capacity in the pipeline should give the same aggregation benefit as would apply in respect of the joint contracting approach outlined above, but it also allows the capacity booking in the pipeline to be structured such that if a party wishes to transfer its interests in the petroleum project, it need only transfer its shareholding in the JVC to a third party (subject to compliance with the equity transfer requirements of the shareholder agreement) and there should be no need to disturb the underlying aggregate pipeline capacity booking between the JVC and the pipeline owner.
It is generally preferable to keep the shareholder agreement and the JOA separate and distinct. The provisions relating to the governance of the JVC should be left to the shareholder agreement and should not be repeated in the JOA.
The parties would remain party to the JOA and would also be shareholders in the JVC. Thus they would be represented in an unincorporated joint venture and in an incorporated joint venture at the same time. Where this does happen the key issue to consider is the potential interface between the shareholder agreement and the JOA. The list which follows contains the relevant aspects.
•Cross-default – sometimes the parties provide that default in the shareholder agreement automatically leads to default in the JOA, and vice versa. There is no need for this, and often it jeopardises existing arrangements unnecessarily. There could be a perfectly valid reason for a default in respect of one agreement, which should not automatically trigger a cross-default. Furthermore, there might not be perfect symmetry in the interests of a party between the two agreements which would readily facilitate a balanced cross-default remedy.
•Voting control – sometimes the parties provide that voting in the shareholder agreement must be in line with voting in the JOA, or vice versa. There is no need for this, and it can devalue voting interests where they do not have to be consistent.
•Symmetrical equities – sometimes the parties provide that the interests of the parties in the shareholder agreement and the JOA must always be the same across the two documents, and a transfer of interests in one agreement must be matched by a transfer of a corresponding interest in the other agreement. This is not compulsory though, and the opposite position could be applied: a party can have different equities in the two aspects of the overall project. Insisting on symmetrical equities could make it difficult for a party to reduce its participation levels in the petroleum project in the future.
The concession could recite a hybrid concession/JOA structure, which would seek to legislate for the horizontal relationship between the parties (but to which the grantor of the concession would be party, and which the grantor would be able to observe directly). This could dispense with the need for a separate JOA, since many of the typical provisions of a JOA will be recited within the terms of the concession,2 but there could also be a separate voting compact that is entered into between the parties other than the grantor in order to address matters that those parties might prefer to retain for their personal consideration.
A structure along these lines applies for example in Argentina, where a Union Transitoria de Empresas (UTE) agreement allows several companies to form a joint venture, and also applies in respect of a production sharing contract that establishes what is sometimes called a joint operating committee or a joint operating body. Petroleum projects in Qatar can be represented by an incorporated contractual joint venture entered into between the state and an investor, with a shareholder agreement. That company would then be the holder of a particular form of concession and the benefits which result from the activities conducted under the concession pass to the company and back through to the shareholders.
The essential point to note from this section is that even where there is a JOA between the parties that document might not be the exclusive statement of the operational relationship between the parties.
Notwithstanding that by entering into the JOA the parties commit themselves to a joint venture together, there may be reasons why the parties might wish to ensure that the association that they have is not one that could fall within the legal definition of a partnership. Whether